Definition

Expenditure is the full amount incurred by a business concern, whether paid or not, while the term “payment” refers to the amount actually paid.

Payments come in two types:

  1. Capital payments
  2. Revenue payments

Capital Payments

Capital payments are the amounts actually paid on account of some capital expenditures.

Example

Furniture is purchased from Wild Wood Furniture for $7,000. Initially, $4,000 in cash is paid and a promise is made to pay the balance within 5 months. In this case, $7,000 is a capital expenditure and $4,000 is a capital payment.

Revenue Payments

Revenue payments are the amounts actually paid on account of some revenue expenditures.

Example

Merchandise worth $1,300 is purchased from John & Sons by paying $800 in cash and promising to pay the balance after 3 months. Here, $1,300 is classified as revenue expenditure and $800 is the revenue payment.

Frequently Asked Questions

If a business concern pays less than what was originally incurred, is the amount paid still treated as a payment?

The excess amount paid by an entity over and above the original expenditure or its book value (net of Depreciation) is credited to income and recognized as revenue in the form of cash: this applies to both capital and revenue payments equally.

If a business concern pays more than what was originally incurred, is the amount paid still treated as a payment?

The excess amount paid by an entity over and above the original expenditure or its book value (net of Depreciation) is debited to income and recognized as revenue in the form of cash: this applies to both capital and revenue payments equally.

How about if a business concern makes partial payment on account of some Capital Expenditure?

In this case, the excess amount paid is debited to income and recognized as revenue in the form of cash: this applies to both capital and revenue payments.

Is it necessary for a business concern to have an asset or revenue in order to make a payment?

No, it is not necessary for a business concern to have an asset or revenue in order to make a payment.

What if the payment is made by an entity other than the one that incurred the expenditure?

If an entity other than the one that initially incurred the expenditure makes the payment, the amount initially incurred is adjusted against the entity that finally pays.

Related Posts

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.